The Concept of Grace Period

Grace Period’ is a concept in the credit card payment system during which the customer can pay the credit card bill amount without the interest. It can be defined as the period starting at the end of a particular payment cycle up to the due date of the bill payment. The Credit CARD Act of 2009 states that the minimum number of days in the grace period for a credit card should be 21. Most credit card issuers that provide cards with grace periods facilitate the customers with a grace period between 21 and 25 days.

The concept of grace period does not apply for all the purchases that you make on your credit card. For instance, cash advances or balance transfers don’t have any grace period facility. Also, if you have a department store credit card, the grace period may not exist in some cases. There are basically two types of grace periods that are normally followed.

Full Grace period
A full grace period allows the customer to carry previous month’s balance. Also, in spite of the outstanding balance, interest is not charged on the purchases that are made in the new billing cycle if they are paid entirely paid off in the 20-25 day period after that. The interest will be charged on the carried over amount but new purchases in the grace period which corresponds to the current billing cycle will stay free from interest.

Standard Grace Period
The full grace period formula appears pretty rarely in the credit card system. Majority of the banks or financial institution that issue credit cards start charging interest immediately on every purchase that is made if the customer has an outstanding bill to be paid. This works like a full grace period if the credit card bill is fully paid every month. As long as the complete bill amount is paid within the timeframe allotted by the grace period every month, there wouldn’t be any interest charges.

The grace period concept appears to be quite complicated and so while applying for a credit card, it is important that you thoroughly check and understand the terms regarding it.